“R” Does Not Have to be a Dreaded Letter

March 26th, 2008 at 08:55am David Bush - Iasta

Today, I welcome a guest post from Jason Busch and Lisa Reisman. This article was used for our latest newsletter, Iasta Insights, which has been running bi-monthly since 2004. You may sign up to automatically receive the newsletter, by following this link.

I’m not sure about you, but we find it almost hilarious how politicians tip-toe around the “recession” word. Seriously, why can’t our President and others call the economic situation for what it is? At least when it comes to the sourcing and procurement world, we don’t need to be as careful. After all, we’re not running for office or trying to obfuscate the truth – or the numbers as the case may be. And even one “R” word can be a boon for us and our companies. The word that we’re referring to here is re-sourcing.

Before you get confused, let us explain. Re-sourcing is quite a simple concept. It involves going back and re-bidding a category which you might have previously sourced. And it just so happens that with the economy the way it is today, there could not be a better time than now to revisit a range of categories that you previously achieved savings in. So get ready to dust off the old e-sourcing tool as re-sourcing becomes an “R” word which you can get the rest of the company excited about.

What categories of spend are ripe for re-sourcing today? A good many, in fact. But the sourcing environment is not always cut and dry. On the one hand, there remains relatively high commodity price inflation in areas such as oil, energy, plastics, metals and food related products despite rising inventories and capacity. So in categories where raw material inputs comprise a material portion of the overall total cost, it might make sense to adopt a sensible sourcing approach where suppliers separate out the raw material components from their bid (and agree to tie the underlying elements to some type of market index). This will create significant competition in a market with slackening demand where suppliers are hungry for business.

But in areas where raw material inputs matter little – or are less transparent in the actual pricing – such as hotel spend, office products, or temporary labor, re-sourcing strategies can be quite simple indeed. In these cases, simply identify a list of new suppliers who you want to invite into the fray and join them with a previous approved bidder list. In some cases, you might find that the supplier landscape has changed quite a bit since the last time you revisited the category. Other times, it will look the same. But it’s always worth spending some time on supplier outreach to ensure that you’re creating a bidding environment – regardless of whether or not you plan to use a reverse auction, sealed-bid, multi-round, or optimization environment (or even a combination thereof) – with the maximum amount of competition.

If our experience about the hungriness of suppliers to participate in re-sourcing projects is any indication, you’ll find that each category will be hit or miss (but you’re more likely to find hits as the economic picture gets bleaker). The only challenge is you often won’t know before starting the re-sourcing process whether or not you’re going to achieve the type of results you’re hoping for.
A good way to test the waters is to reach out to suppliers you’re not working with today and engage them in conversation before bringing the process online. Find out what’s going on. How are inventory levels, orders, etc? Practice small talk by commiserating about the state of the economy and see if they take the bait. Then, once you’ve satisfied your curiosity that there really is a good opportunity, it’s time to pull the re-sourcing trigger – one category at a time.

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Jason Busch is editor of the blog www.spendmatters.com and Content Director for Spend Matters Navigator (link to spendmatters.siderean.com, a procurement and operations research hub.) Lisa Reisman is co-editor of the blog www.agmetalminer.com and Managing Director of Aptium Global.

Entry Filed under: General, Global Supply Issues/Risk, Supply Management Best Practices